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Disclaimer: The information provided on this site does not, and is not intended to, constitute legal, financial, tax, or real estate advice. Please consult your expert for advice in those areas. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Although Blueprint provides information it believes to be accurate, Blueprint makes no representations or warranties about the accuracy or completeness of the information contained on this site. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
Getting started in real estate investing isn’t easy, but with an outline to guide new investors, the process will be far less overwhelming. Answering these seven questions can help provide a good foundation for finding and acquiring the right real estate investment property.
There are many strategies savvy investors leverage to build their portfolios, but without a clear goal, they’ll fall flat. Many people turn to real estate investing for specific reasons like the following:
In a LinkedIn poll, we asked what motivates our followers to invest in real estate. The most popular response was creating security for their families, followed by financial freedom now, and a tie between the ability to leverage the equity and better returns and tax incentives than other asset classes.
The underlying motivations for investing in real estate can be broadly divided into three categories:
While it’s important to have a long-term goal, not every strategy to reach it will be relevant to every investor’s current financial situation. When setting a real estate investment goal, take stock of your resources, time, and network. It takes time to build a portfolio, so it won’t make sense to turn to real estate investing strategies designed for a more established investor when starting out.
Setting a goal and finding a strategy to match it may feel overwhelming and even out of reach without access to capital.
Fortunately, there are ways to get started in real estate investing with little or no money. Wholesaling is one strategy that doesn’t require tons of upfront cash. Real estate investment trusts (REITs) and house hacking are other excellent real estate investment strategies on a budget.
Other popular and more advanced strategies include buy, rehab, rent, refinance, repeat (BRRRR), property tax lien investing, fix-and-flip, short-term buy and hold rentals, and long-term buy and hold rentals. These and other more advanced strategies typically require a strong understanding of the market and the appropriate financing options to produce successful results.
There may be overlap between the investment goals and the strategies used, but here are several examples of how an investor might match business and financing strategies to their long-term investment goals.
Long-term Investment Goal | Description | Examples of Strategies |
Cash Flow Optimization | These strategies are known to help generate cash quickly for new investors but may come with higher risks. | Wholesaling Fix-and-flip House hacking REITs Short-term rentals Hard money loans Bridge loans |
Portfolio Building | These strategies help build and maintain a real estate portfolio by leveraging the equity and cash flow of current assets. | BRRRR method Long-term rentals Rental debt snowball Live-in-then-rent Live-in-flip All-cash rental plan |
Wealth Protection | These are advanced strategies that preserve current capital while building future wealth and may require the help of tax or legal professionals. | 1031 exchanges |
Once an investor has aligned a realistic goal with a relevant strategy, the next step is to find a property that matches it.
The buy box is the list of criteria that an investor prioritizes when researching and purchasing a property. Characteristics like:
Depending on the strategy, one or more of these characteristics may move toward the top of the list. For instance, if a new investor plans to try a buy-and-hold house hacking strategy funded by a 203k loan, a duplex, triplex, or quadplex is a must. For house flippers planning to sell to a family, other considerations like the number of rooms, school district, and amenities like parks and pools will become more critical.
This is where knowing the market and working with professionals familiar with the area can help make or break your real estate deals.
There are several ways to finance a real estate investment. A few of them include:
A lending professional, like a mortgage broker, may help investors better understand what options are available and how each could benefit a particular goal.
Calculating the return on a real estate investment depends on the intended use. For flippers looking to realize the return on investment (ROI) as soon as possible, there two main types of calculations used:
The cost method is a straightforward formula dividing the equity by the combined cost to acquire and repair a property. The ROI is expressed as a percentage.
For example, if the property costs $70,000 to purchase and $30,000 to repair, the total costs come to $100,000. If the property is sold for $150,000, the investor’s equity is $50,000.
Dividing $50,000 by $100,000 = 50% ROI.
All-cash deals would use the cost method to calculate ROI.
The out-of-pocket method is more commonly used for financed transactions, resulting in a higher ROI.
For instance, if an investor purchases a property for $70,000 with a down payment of $20,000 and puts in $30,000 for repairs, the total out-of-pocket expenses are $50,000. If the property is valued at $150,000, the new equity amounts to $100,000. That’s an ROI of 66% or $100,000 divided by $150,000.
Of course, with financed deals, the closing costs to originate the loan increases the initial upfront costs compared to an all-cash transaction. Other factors can affect the final ROI, like the interest rate, taxes, and other carrying costs, if the property doesn’t sell as quickly as expected.
A buy-and-hold strategy introduces another dimension of ROI calculations taking into account the cost to operate and maintain the property and the equity growth. While the ROI is realized more slowly compared to house flipping, the steady cash flow income and potential long-term equity growth make long-term and short-term rental strategies attractive.
If a loan was taken out to finance the purchase of the property, ongoing mortgage payments must be subtracted from the monthly rent. Once the total annual rent income is calculated, it’s divided by the original out-of-pocket expenses like the down payment, closing costs, and any repairs.
The two-part equation looks like this:
If you want to add equity growth into the equation, it can be added to the annual return after examining the mortgage amortization schedule to find out how much of the mortgage payments went toward the principal of the loan.
Every real estate investor will have a different idea of what threshold is required for a “good” return. Historically, S&P 500 stocks average annual returns of 10% since 1926. While home-flipping is seeing a downward trend in returns compared to previous years, the ROI in 2020 ranged between 19.7% and 92.5%. The most successful flippers were in the Scranton, PA area. The worst returns were in Idaho. Regional differences in inventory, homebuyer or renter demand, design tastes, and other factors can impact the bottom line, so understanding the market and competition is vital to predicting a realistic ROI.
For investors who want to prioritize cash flow, self-managing a long-term or short-term property might sound like a great way to reduce monthly operating costs and increase revenue. However, it takes a lot of time and additional skills to manage a property. Self-management requires calculating a fair market rent, marketing the property, maintenance, rent collection, and bookkeeping.
If it all seems like too much, outsourcing the work to a property manager or company might make sense depending on overall costs.
The title and closing process is an often overlooked aspect of real estate investing. Of course, every investor wants to close on a property as quickly and as efficiently as possible while saving on closing costs. Still, not all title agencies are equipped to do the type of closings common among investors. An investor-focused title platform like Blueprint can accommodate more complex transactions like double closes and assignment contracts. We also focus on reducing friction points in communication by providing all parties with a dashboard to track transaction milestones and manage tasks. Blueprint customers save time at closing by electronically signing documents beforehand and scheduling remote online notarizations or mobile signings whenever state laws or underwriting guidelines permit.
In addition to saving you time, we’re finding unique approaches to reducing title costs. Partnering with our affiliated underwriter, Southwest Land Title Insurance Company, allows Blueprint to deliver policies with up to 40% lower premiums in some states.
Learn more about how Blueprint can help you with upcoming closings; schedule a demo today.
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